RFR Adoption Slows in Q1: ISDA-Clarus
Posted by Colin Lambert. Last updated: April 28, 2021
The trading volumes of interest rate derivatives referencing risk-free rates (RFRs) decreased slightly in the first quarter of 2021 according to the latest Transition to Risk-Free Rates Review published by the International Swaps and Derivatives Association (ISDA).
The review analyses the trading volumes of over-the-counter (OTC) and exchange-traded interest rate derivatives (IRD) that reference selected alternative RFRs, including the Secured Overnight Financing Rate (SOFR), the Sterling Overnight Index Average (SONIA), the Swiss Average Rate Overnight, the Tokyo Overnight Average Rate, the Euro Short-Term Rate and the Australian Overnight Index Average.
The ISDA-Clarus RFR Adoption Indicator, which tracks how much global trading activity (as measured by DV01) is conducted in cleared OTC and exchange-traded IRD that reference the identified RFRs in six major currencies, decreased to 9.8% compared to 9.9% in the fourth quarter of 2020.
Global RFR-linked IRD traded notional accounted for 10.6% of total IRD traded notional compared to 12.3% in the prior quarter.
Global data is collected from all major central counterparties that clear OTC and exchange- traded derivatives in the six currencies. Only cleared transactions are captured in this data.
US data is collected from the Depository Trust & Clearing Corporation (DTCC) swap data repository. It therefore only covers trades that are required to be disclosed under US regulations and includes cleared and non-cleared OTC IRD transactions.
Based on US trading data, the report says traded notional of OTC IRD referencing alternative RFRs increased by 41.1% to $5.5 trillion compared to $3.9 trillion in the fourth quarter of 2020. However, RFR transactions accounted for 7.8% of total IRD traded notional compared to 9.5% in the prior quarter.
Based on US trading data, IRD traded notional referencing SOFR increased to $780.7 billion from $620.9 billion in the prior quarter. The proportion of IRD traded notional linked to SOFR remained small, accounting for only 1.1% of total IRD traded notional.
IRD traded notional referencing SONIA increased to $4.6 trillion compared to $3.2 trillion in the fourth quarter of 2020. SONIA transactions accounted for 6.5% of total IRD traded notional.